When asked how the UK occupational pensions system could be improved I am often reminded of the Irish farmer of lore, who when asked for the best route to take responded that he wouldn’t start from here.
The trust model, on which the UK occupational have historically been built, is generally based on the principle of well meaning amateurs working in good faith for the benefit of the beneficiaries. In hindsight it is perhaps not the best fit but it is where we are.
The level of complexity, breadth of regulation and potential impact of pensions schemes on the survival of their sponsors has escalated exponentially in recent years. The governance and knowledge and understanding requirements are ever increasing the demands on trustees and leading to growth in the number of paid trustees.
The added demands on the time of trustees has led to an increase in the number of lay trustees (especially chairs) being remunerated. Similarly the varied areas of expertise involved in running pension schemes has seen some boards appointing trustees with specific expertise in areas such as legal, accounting or investment for instance. Remunerating a lay trustee does not make them a professional and being a trustee with an expertise in one are of a pension scheme does not make you a pensions expert.
Last year the Pensions Regulator put forward a proposal that professional trusteeship should be defined by reference to whether or not an individual (a) received payment beyond expenses or an honorarium for acting as a trustee, or (b) was an expert in trustee matters.
Was this the right starting point? Apparently not entirely. In the new Professional Trustee Description Policy that has just been issued, the Pensions Regulator has stated that it would not normally class remunerated trustees as a Professional Pension Scheme Trustee where they are a member of the scheme (or a related scheme); or employed within the same group as a participating employer or; do not act, or offer to act, as trustee to any unrelated schemes. In our view this move is understandable, appropriate and necessary.
A Professional Pensions Trustee need not be an expert in any specific area but should be an expert generally on the running of a pension scheme. That distinction is key and the Regulator has got it spot on. The missing piece of the jigsaw is what does “having expertise in trustee matters generally” look like?
It is now over to the profession to paint this picture, build a code around it and regulate who can propose themselves as a Professional Pensions Trustee. The Regulator has taken an important step in the right direction, it is time for the profession to come of age.
Above all else, having a Professional Pensions Trustee on your board or as a sole trustee should improve the governance of your scheme. It should reduce the risk of their being a breach of law and the need for the Regulator to impose a fine. Therefore, should that need arise it is only natural that the Professional Pensions Trustee is held to a higher standard and that any fine imposed on them is greater – how much greater is not straight forward and, amongst other criteria, should take into account the nature of the breach and ability of the trustee to pay.
Sometimes breaches are outwith the control of the Trustee(s) (e.g. when Employers are slow to engage in funding discussion) but where a breach is unavoidable you would expect a Professional Pensions Trustee to have strong mitigation in place and have been in early conversation with the Regulator thus managing both the likelihood and quantum of any fine.
The change in definition will need to be kept firmly in mind when it comes to your Scheme Return as Professional Pension Trustees will need to be identified in it.
Professional Trustees should be good for scheme governance to an extent that far outweighs the risk of higher fines. It is essential for employers, co-trustees and members alike that professionalism for the 21st Century Trustee is well defined and understood. This new definition is a good starting place.